Marketplaces Are the Next Big Thing in B2B Chemical Distribution

eCommerce marketplaces are making a big comeback in B2B chemical distribution, and this time, they threaten to permanently change the way business is done.

It’s instructive to look back at what happened last time. Right around the time of the late 90’s dotcom era, a few dominant players in chemical distribution took a shot at eCommerce. Chemdex was a notable example: it earned a $4 billion dollar valuation, only to fail miserably in the dotcom bust.

Other dotcom-era giants like Elemica, ChemPoint, and Ariba have survived, but only by transforming to deal instead in ERP software, logistics, and other kinds of services. But now, the time is right. Industry leaders, startups, and even big tech platforms are grabbing their respective pieces of the pie.

Given the state of affairs in the industry, chemical distributors would be well-advised to adopt the B2B marketplace model, and they should act now if they want a shot at leadership.

The Chemicals Landscape: Why New-Era B2B Marketplace Disruptors Are Positioned to Win

The chemicals industry boasts $4 trillion in total revenue, the biggest markets being North America, Europe, and the Asia-Pacific region. The chemical distribution market, in particular, is projected to reach $317 billion globally by 2025, growing by a CAGR of up to 5.7% from 2018 to 2025. Demand is driven by industrial manufacturers, engineering firms, universities, pharmaceutical companies, and many other types of buyers.

Distributors have traditionally operated in a “linear” fashion to procure, store, and resell chemical products, whether they offer basic commodity chemicals, specialty chemicals, or both. They greatly reduce supply chain complexity for buyers, are often fortified by long-term supplier and contract customer relationships, and sometimes contribute expertise in mixing and formulating chemical products.

A large traditional distributor might be able to list 20,000 – 30,000 SKUs for sale. But distributors can do much better, for much longer, by creating true marketplace platforms. And new marketplaces at scale are a palpable threat to legacy distributors.

Against this backdrop, companies are jumping to launch online B2B marketplace ventures:

Large, entrenched chemical producers and distributors are launching platforms, in many cases allowing their erstwhile competitors in manufacturing to be third-party sellers on the new websites. Molbase and OKCHEM, both of which sell a wide range of commodity and specialty chemicals, have joined the ranks of thriving B2B marketplaces in China. A few European standouts include:
- CheMondis (owned by LANXESS), which offers commodity chemicals;
- OneTwoChem (Evonik), also covering commodities;
- GoBuyChem (Noahs Ark Chemicals), offering both commodities and specialties;
- Asellion and Covestro Select (both created by specialty chemical maker Covestro, the latter of which is still in beta as of November 2019). Asellion purports to allow producers to create their own “digital stores” on the platform.
Startups are forming brand-new marketplaces. Knowde in the US focuses on specialties and commodities for personal care, HI&I (household, industrials, and institutional), and plastics and elastomers. The European venture Pinpools sells chemicals for various coatings and paints, as well as for essential oils and fragrance end products. Newer ventures often make a dent in specialty markets when starting out.
Tech platform giants are also staking ground in B2B chemical eCom: Amazon is beginning to sell chemicals through its “Lab & Scientific” category, and Alibaba operates 1688.com in China, through which it sells Evonik, BASF, and Covestro products.

That’s the picture, but why is the space ripe for both incumbent legacy distributors and new startups to build marketplaces?

First, there’s fragmentation. There are many thousands of mom-and-pop distributors who trade regularly with local buyers. There are 22,500 chemical companies in operation in Europe, and in the US, more than 13,000 companies are producing over 70,000 products. Hence, there’s ample opportunity for new marketplaces to come along, aggregate supply, and streamline transactions, especially locally.

Second, there are some highly in-demand benefits of marketplaces from the consumer perspective. Chemical distribution marketplaces can offer price transparency, streamlined and shortened buying cycles, and the promise of product availability. This is a huge plus for consumers wearied by the drawn-out, opaque, and burdensome buying process.

Finally, the modern convergence of a maturing Industrial Internet, ingrained consumer expectations, and global eCommerce trends simply support the idea of moving chemical distribution online.

Logistics, Value-Added Services, Consolidation Trends: Are They Barriers to Entry?

In short, none of them are.

Logistics methodologies are already well-established in the largest markets, which of course include Europe, the US, and China. In the case of heavy “bulk” or hazardous chemical products, which are naturally more difficult to distribute, marketplaces can choose to push back those capabilities until later, focus on serving locals, or partner with existing logistics providers.

Value-added services might seem to be another stumbling block for new marketplaces, but they are not necessarily a strain on resources. Information services, delivery of technical documentation, as well as ongoing customer support, can be at least initiated through a platform’s online functionality.

For orders that call for blending and repackaging, deep in-house expertise or application lab processing is not always needed. Even specialty chemicals products can often be handled or modified via standardized processes, allowing a distributor to just “procure, store, and ship” product much of the time.

And regardless of the widespread industry consolidation and M&A activity, local specialty markets are still hungry for product and represent a reliable, ongoing source of demand.

Platforms still offer unprecedented access to local — and when a company achieves enough scale to handle it, international — chemicals markets. Startups can gain traction by specializing, building a base of local spot buyers, and inexpensively adding value.

The Platform Value Prop and the Threat New B2B Marketplaces Pose to Legacy Distributors

The chemicals industry is beset by signs of age and a lack of transparency.

Doing the legwork of building strong, personal industry relationships is key. Lots of business still happens over the phone. Legacy distributors often rely on the system’s opaqueness to inflate prices and meet margins.

So there’s plenty of room for new players to arise, build a base of suppliers, and gain an edge by building a marketplace with millions of SKUs, as opposed to just tens of thousands.

True marketplaces aren’t burdened by the costs of buying up inventory and stocking product in a warehouse, meaning they can capture the “long tail” of distribution and compete with entrenched players. Internal competition among suppliers will lead to lower prices. The business can then focus on building a base of local spot buyers who order small-load and easy-to-transport chemical products, before expanding into other specialties.

As older, linear industry players falter on process and price transparency, smaller and medium-sized startups — as well as established distributors — can seize a huge competitive edge by creating a marketplace that attracts increasing supply and demand with time. It’s a solid way to access sizable market share in B2B chemical distribution, while the door is still wide open.

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